According to Marine Bochot, Head of Group Credit Underwriting at Euler Hermes, identifying Covid-sensitive customers can be complex as it often involves piecing together a jigsaw of factors, which combine to heighten the risk of business insolvency.
Marine explains that one of the key factors that increases insolvency domino effect risk is the sector in which a customer operates. “For example, businesses in the hospitality, non-food retail, air industry and automotive sectors now represent a higher risk of insolvency,” she says. “That’s because borders have been closed, traffic has been minimal, mobility has been stopped, people haven’t been able to meet or move, and they either haven’t been able to consume or they consume differently – for example online.”
“In fact, many businesses in sectors that rely on physical exchange and social interactions for goods and services have been hit first by the Covid crisis. So they have experienced more intensely the need to quickly adapt their operational models and cost structure. Companies that lack this agility are more exposed to business insolvency and a potential domino effect in the supply chain.”
The passenger airline industry is a prime example of this. The airlines with the agility and flexibility to convert or reinforce part of their traffic from passenger to cargo have performed much better during the pandemic.